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6/19/15

Prepare yourself for a world of constant surveillance by insurance companies

Nest, a connected-appliance company owned by Google, announced yesterday that it has partnered with insurance companies to offer discounts to customers willing to share data generated by Nest’s smoke detector.

According to Quartz reporter Alice Truong, who attended the Nest launch event, the data shared with insurance companies is just to make sure
that Wi-Fi, batteries, and sensors are working properly. In return,
American Family Insurance and Liberty Mutual, two insurance companies,
will offer customers discounts on their premiums, amounting to about 5%.

On the face of it, this makes sense. Insurance
companies are in the business of measuring—and, where possible,
minimizing—risk. If they can be assured that a homeowner is taking steps
to avoid a fire, then they can be more confident offering insurance.
And the lower risk of a fire can be reflected in a lower price to the
insurance buyer.

Consumers have long been accustomed to sharing
their financial information with credit rating agencies and, more
recently, their web browsing and mobile phone data with the advertising
and marketing industries. Now, it is the actuaries who want to know what
you’re up to.

In some cases, such tracking makes insurance
possible for people who otherwise had no access to it. In South Africa,
one company offers life insurance to HIV-positive people
so long as they agree to regular blood tests and anti-retroviral
medication. It is in the best interests of the company to keep its
policyholders healthy.

The most widespread use of tracking has been for auto insurance. Progressive, an American insurer, provides discounts
of between 10% and 15% to customers who agree to share data on their
driving habits with the company. In Italy and the UK, this usage-based
insurance has been growing in popularity, with up to a fifth of all car
insurance policies linked to tracking.

A report
(pdf) about usage-based car insurance published last year by Deloitte
predicted that the auto industry was just the beginning: “Before too
long the use of sensory technologies that permit behavioral underwriting
by insurers is likely to be expanded beyond auto insurance into
homeowners, life and health coverages, and perhaps even non-auto
commercial lines as well, such as workers’ compensation.”

That future is creeping into view. The worry is
that if such forms of insurance become mainstream, sharing data may no
longer be optional in practice: instead of a discount for those who do,
there may be penalties for those who don’t. “In the end, serving the
‘naysayers’ may become a specialty market niche for some carriers,” the
Deloitte report suggested.\\